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"Some entrepreneur ventures turn you inside out".
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The Gullible and Bernie Madoff
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Like many of us, I have been both mesmerized and appalled by the Bernie Madoff scandal. The numbers are staggering – $50 billion gone up in smoke. The names who have been hurt range from the very famous to the nobodies – but the underlying question remains – how did it happen that no one figured it out? And even more to the point, what human factor allows and even encourages one to engage in this kind of investment?
Stephen Greenspan, a psychologist, has analyzed some of the behaviors in his recent article in the Wall Street Journal. Herewith are some of his thoughts (intertwined with a few of mine).
Situations: Greenspan contends that every gullible act occurs when an individual is presented with a social challenge that he has to solve -- and the Madoff story is replete with social feedback pressures --- it was a hard club to get into, Bernie was not accessible, and you could only invest if you knew somebody or were approved by him personally or else you had to go through feeder funds – i.e. access was limited. My Baby Billionaire Rule #215 (with appropriate reference to my personal idol Groucho Marx) is this: Any club that would have me as a member, I don’t want to join.
If it is that hard to get into, then count me out. But we all have the human nature to want to belong and to want to say yes and to be part of something private, special, limited and closed to the hoi polloi. This explains all kinds of clubs, from golf to eating – from investments to tailors and even doctors. When the door is closed, we want to get in even more than before.
So, the question is: Why is it so special that I am willing to suspend disbelief – and especially in the financial world, there is the perception that “the big shots are getting a special deal, and I want some of that also. I want to be special too.” So Baby Billionaire Rule #217 is: Beware of doors that only open with a secret knock.
Greenspan talks about cognition and how it impacts gullibility – and gullible acts are increased by intuition, impulsivity and non-reflective actions. It is amazing that smart people can act so dumb…..and the answer is simple -- because the decision feels good…..feelings are deceptive….smart people often suspend their skeptical faculties when their gut trumps their brains.
If you are ignorant in a certain area, do not assume you can overcome that by trusting other “smarter” people. At some level, the people hurt by Madoff were culpable as well – they were greedy in a benign way – they looked at the other members of the club and they trusted. So Baby Billionaire Rule #311 is: Trust is only earned in a deeply personal way – it cannot be garnered and granted by someone else.
Personality: If you are like most of us, you want to say “yes” more than you say no -- it is easier to say yes and go along for the ride – after all, what can happen --- saying no is a learned response….and in the case of your financial well-being, it is wise to practice your “unloved” quotient from time to time. So remember Baby Billionaire Rule # 210: A movie studio executive would be right 84% of the time if he said no to every film project that came across his desk --- don’t bet against the macro.
Emotion: The emotion to watch out for is two fold – one is obvious and that one is greed….and here is a story I tell often. When I am offered a fabulous deal, I always wonder: why did he call me? If it were so fabulous, why did I get called? Was I his best friend, was I the first call he made, did he owe me one, do I bring something unique to the table that is important to the deal – in other words, what makes me so special that I get this opportunity and if I can’t think of at least two really good reasons – then the obvious conclusion is – why me?
And so Baby Billionaire Rule #225 is: If you look in the mirror and see yourself as opposed to Brad Pitt, then pass the deal or get a new mirror. And finally the best rule of all from the Easter bunny – don’t put all your eggs in one basket.
January 4, 2009
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"D" Stands for Dissention in Decision Making
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When companies, teams or groups make decisions do they encourage, listen to, and even follow the dissenting dialogues that might arise?
When one of your team pipes up in the back that maybe x and y should be considered – after the CEO, the leader, the “head dog” on the sled, says we are doing a and b…how does one make sure that the head dog and the other members of the sled – actually listen to the small dog in the back of the room?
So first let’s look at a few examples of what it costs when you do not listen….
Top of the list – George W. Bush, August 2001, when the report comes in that says some people are going to fly a plane into some tall buildings – he did not think much of that dissent.
Dare I continue to pick on W. … the dissent said there were no WMD’s, but Joe Wilson was shitcanned…..yet we pressed on…..and we will be pressing in that sand for quite some time.
Ok – I’m a democrat but there is enough blame in this area to go around…..take John F. Kennedy and the Bay of Pigs...his invasion plan was a disaster...there were dissenters, but they could not be heard above the war drums.
How about 1996 on Mt. Everest when several professional climbers died in part because the junior members of the team did not speak about certaint safety rules that were being ignored…just read Jon Krakauer’s book Into Thin Air.
Let’s take a peek at NASA back in 2003 – the shuttle launch of Columbia when the foam broke off and damaged the thermal protection system. It was a known problem…..NASA knew about foam shedding and the damage it would cause, but engineers, fearing for their jobs and the reputation of NASA, looked the other way. Their dissents were not registered by the top brass and Columbia disintegrated upon re-entry.
Researchers at Harvard Business School found when they studied this phenomenon that “the propensity to maintain a silence, at both the personal and organizational level, is widespread and problematic” in both the public and private sectors.
But the issue is not only in the negative….it also turns up in large organizations with respect to good ideas. People are afraid to speak up unless they are sure that the idea is good and will be well received.
This is anathema in any high performing company – it is the CEO’s job to make sure that dumb ideas at least see the light of day. If he doesn’t, he is operating in a windowless room, but if he encourages it, he gets a chance to find the one in thirty really good idea. You know – it’s the “kiss the frog, find the prince” rule, right?
The fear is at the lower levels, where the “sherpas” are reluctant to speak up for fear that the supervisors will look down on them, criticize them, think them stupid, or even fire them.
Here is how the researchers described it –“the potential costs for speaking out are clear and immediate; the potential benefit, however, is unclear and certainly long range.”
So shut up and get back to work…
More examples…
New Coke was doomed to failure - they ignored market research that said no one was going to like it.
General Motors – it took years before they believed the research that said people wanted more fuel efficient small cars.
You know the old mantras –
Don’t rock the boat
You get along by going along…
How is it possible in 2007 – in a flat word that is changing at hyper speed that these old shibboleths still exist?
And so we come to Baby Billionaire Rule # 307 – candor must be rewarded and incentives must be in place to encourage it.”
As I always say – “It’s what you don’t know that you don’t know that will kill you.”
And it is inconceivable to me today that corporations allow this kind of fear to still exist. New thoughts, and more accurately dissent – disagreeing with the old man in the corner office – must be promoted.
I am not suggesting you pipe bomb the old man--there is a coherent and rational way to present dissent-- but the atmosphere in the corporation must allow it to breathe and blossom.
Leaders with preconceived notions – dare I mention W. and Iraq again –who are bound and determined to carry through on their ideas – regardless of the dissent, are demonstrating a costly behavior – whether in the government or in a little company.
Just because you think you know what is best for the company doesn’t mean you actually do know what is best. That is why you have employees instead of deaf, dumb and blind robots.
Robert S. McNamara – Vietnam era Secretary of Defense put it this way,
“Controversial issues do not surface because it is threatening to organizational harmony as well as to individual careers.”
The domino theory was never given a full hearing – and so we had Vietnam. Nice job, Bob.
Listen to these words from Alfred Sloan 1922 president of General Motors,
“Gentlemen, I take it we are all in complete agreement on the subject here…” (the heads all nodded, then Sloan continued) “…then I propose we postpone further discussion of this matter until our next meeting to allow ourselves time to develop disagreement and perhaps a better understanding of what the decision is all about.”
How can you not love that guy?
If you want good decision making, contention is essential. Or said another way – Take a good look at the elephant in the room and if you can’t find it, then go to the pet store and get one and bring it into the board room. For the price of a large bag of peanuts, you will be better for it.
Promote the mavericks and reward intelligent dissent – otherwise you will lose the creative vital edge in a company.
Make your senior team learn to hold paradoxical points of view….tolerate and embrace ambiguity. If you only rely on the past, you will always see 20-20, but you won’t see the cliff you are driving off right in front of you.
The smartest guys in the room need to listen better, be humble and remember that decisions are never better for silence.
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Great Teams Win Super Bowls
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Currently, I’m running a tiny technology company based in San Diego, and we’re in desperate need of a particular skill set. We advertised on Craig’s List and got one spectacular resume. We had the candidate meet our technical team on the east coast, and they said that he has everything that we’re looking for.
I checked his references, and we had an initial conversation about compensation that is probably going to be less than he earned in his prior position. Let’s call this gentleman Mr. Tolstoy since he’s from Russia, like the technical founder of the company.
The references turned out to be medium, and I then had another conversation with him and I said: “Why don’t you do a couple of days of work with the technical team so that we can make sure that this is a good fit.” It’s easy since he’s 30 minutes away, he’s unemployed, and I agreed to pay him for the two days.
He has the skill sets, but…..
After the two days, the technical team said that he definitely has the skill sets. So we agreed to hire him as a consultant at a salary that was higher than we pay anyone in the company. I discussed this with the technical team and the chairman of the board. This was a joint decision because we really needed his skill sets. We wrote up a consulting agreement clearly delineating his compensation and a modest stock option grant, and he sent it back with two changes.
First, he broke down the compensation into an hourly wage to the penny, and he wanted the consulting agreement to terminate at the end of four months. This is clearly a very precise guy. So the questions I asked myself were: “Will this guy fit into the corporate culture of a start up where people don’t look at the clock? Should we hire him because we are so desperate for his skill sets?”
Arguing with the CEO
At the end of his email, he said to call him if I had any questions. I called and told him that I was a little troubled that he figured this out on an hourly basis, which led to an argument and I had to stop. Here’s a guy who has never worked for us, he’s never met me in person and he’s already arguing with the CEO. So I said I’d have to think about this, and I’d get back to him. Next, I talked with the rest of the team and concluded that this behavior doesn’t work for us and we’re moving on. So we’re still looking for a person with these skill sets and it does somewhat delay us.
Don't try to fit a square peg into a round hole
Building a team is the key to creating a successful start up—pick the people who will fit into the culture. The CEO’s most important job is hiring well and being the visionary and model for the culture that you want in your company.
There are great players, but what wins Super Bowls are great teams.
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Unmentorable Mentees
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I’ve been a little wound up. I’m not in the “biz” of giving advice, but I try to be polite. A friend of a friend has a friend who is starting a business, and they invited me to lunch, which I ended up paying for. I listen to the pitch. He wants to create a franchised air taxi service and he wants to raise $10 million. He has some software and other stuff.
I asked: Do you have customers?
He said: No
I asked: Do you have revenue?
He said: No
I asked: For $10 million, what do I get?
He replied: You get 40 percent of the company.
I said: That means you’ve put a $12 million pre-money valuation on a company which has two people—you and your friend-- no customers and no revenue.
The guy didn’t blink.
I said, “What you have is a software package which might be of value to air taxi services,” and asked whether he’d thought of licensing the software. I gave him some options other than raising $10 million and creating a brand.
He’s been at it for a year and has raised $300,000…not a great track record.
I said, “It feels like it could be a software company. You could license it to air taxi services and generate some revenue.” He remarked that other people have said the same thing.
“But they’re wrong,” he contended. Listen, other people have said this—but he’s not budging. Then he added, “I’ll be the first to market.” And I’m thinking of the hundreds of times that I’ve heard this from people who end up with arrows in their back.
So, I picked up the tab for lunch and all the while I’m thinking this guy is not listening and he’s not mentorable. You can’t raise $10 million from angels with no customers and no revenue.
Then at 2 p.m., another guy showed up, and he explained a new business for which he’s trying to raise $1 million. His concept was that people would pay 99 cents on their cell phones to vote on a video. I turned to one of my associates and asked, “Would you pay for this?” And he said, “Why would I vote on my phone when the video is on the internet and I can vote for free.”
It’s difficult at best to start a company and make it successful. You need all the components of the Baby’s Book on Becoming a Billionaire, and you need some luck. I spent the day talking with people whose ideas were not well thought out.
It shows how hard it is to create a viable, sustainable business…. and if you ask for mentoring, be prepared to listen.
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Are You Honking?
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CEO entrepreneurs are often asked, “What keeps you up at night?” I have decided that is a stupid question--take an Ambien and go to bed because nothing should keep you up at night…you need your sleep.
But what keeps me up every waking minute is an incredible sense of urgency. The single most dominant characteristic of great leaders and great entrepreneurs is an abiding, overwhelming, constant sense of urgency...the need for speed and for focus.
Another way of looking at urgency is to match it with a sense of impatience. I abhor long emails...tell it to me in less than ½ page...more than that is a waste of bits and bytes. There is a need to compress--to look at the single core issue.
So here is a problem we are solving at the Quan -- it has to do with a sequence of when we need certain things to arrive. It’s a simple problem in supply chain, but the key element is not when they will arrive, but when and in what order they are needed.
What is most important in a conversation is to keep the participants on point and to figure out a decision tree....what needs to happen first, then second, etc. And then, of course, the discussion includes “if this, then that....if this doesn’t happen, then…”
Sounds simple, but I suggest that it is not.
I am in a hurry – and I want all my troops to be in a hurry also. I think time matters deeply.
Now this can express itself in less than charming ways at times.....for example, I have a tendency to honk my horn when people in front of me in the car are either too slow or too stupid. Honking in California can get you shot at – and I know this, but my wiring is such that I am in a hurry to get where I am going.
While I am not proud of this behavior on the road (and I have modified it) – I do think that figuratively honking in your business is a good characteristic.
A honk is a polite way of saying -- let’s go, get focused, get in the game.
So that leads to Baby Billionaire Rule # 288 – if you honk on the freeways of southern California, you stand a good chance of getting killed…if you don’t honk at the slow drivers in your company, you also stand a good chance of getting killed.
My view is this – honk early and honk often – just don’t do it behind a large truck on the freeway with a gun rack in the window.
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